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Why DexCom Shares Dove

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of DexCom (NASDAQ: DXCM  ) , a developer and manufacturer of continuous glucose monitoring systems, dipped as much as 13% earlier today after competitor Medtronic (NYSE: MDT  ) announced the approval of its MiniMed 530G by the Food and Drug Administration.

So what: Why are DexCom shareholders in an uproar? Because the MiniMed 530G is Medtronic's first-generate artificial pancreas system capable of continuously monitoring glucose levels in diabetic patients, and also capable of switching insulin injections off when threshold glucose levels are reached via sensory inputs. Medtronic plans to launch its new product over the next couple of weeks. In other words, DexCom has some new competition, and shareholders aren't too happy about it.

Now what: DexCom is a company and a story I'd really like to believe in as its products would presumably have wide appeal on paper with 25.3 million diabetics and an additional 79 million pre-diabetics in this country. However, DexCom still can't find a way to turn a profit yet -- and that's a concern. I'm not saying DexCom won't turn a profit ever, but the simple fact that its share price has more than doubled and it's valued at 17 times trailing 12-month sales despite ongoing losses demonstrates to me that DexCom's potential downside could far outweigh any upside over the next couple of years. My suggestion would be to wait for DexCom's bottom line to catch up with its frothy valuation and stick to the sidelines in the meantime.

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Related Tickers

9/26/2016 9:58 AM
DXCM $92.89 Down -1.03 -1.09%
DexCom CAPS Rating: **
MDT $86.73 Down -0.98 -1.12%
Medtronic CAPS Rating: *****